The explosive price action seen this week continues to highlight how global financial markets remain sensitive to key inflation data!

Currencies, commodities, and stocks were injected with fresh volatility mid-week after the softer-than-expected US inflation figures calmed fears around Fed rate hikes.

• The US Dollar Index cut through the 100.70 support like a hot knife through butter and is currently on pace for its worst seek since November 2022.
• Gold prices are trading back around the $1960 level, currently up roughly 1.6% this week.
• Global stocks are set for their biggest weekly gain since November 2022, with the S&P500 hitting fresh 2023 highs.

Markets may be pumped with more volatility this afternoon due to earnings announcement by Wall Street banks.

And even before things settle down across the board, investors are already bracing for fresh action in the week ahead thanks to top-tier economic reports and key risk events…

Monday, July 17

• CNH: China key policy rate decision, Q2 GDP, retail sales, industrial production
• USD: US empire manufacturing

Tuesday, July 18

• AUD: Reserve Bank of Australia July meeting minutes
• CAD: CPI, housing starts
• USD: US retail sales, industrial production
• SPX500_m: Bank of America, Morgan Stanley earnings

Wednesday, July 19

• EUR: June CPI (final)
• GBP: UK June CPI
• USD: US housing starts
• SPX500_m: Goldman Sachs, IBM earnings
• NQ100_m: Tesla, Netflix earnings

Thursday, July 20

• CNH: China loan prime rates
• AUD: Australia unemployment
• EUR: Eurozone consumer confidence
• USD: US initial jobless claims, existing home sales, University of Michigan Consumer Sentiment Index

Friday, July 21

• CAD: Canada retail sales
• JPY: Japan June CPI
• GBP: UK Retail Sales, Gfk Consumer Confidence

Our focus falls on the GBPUSD which has resembled a speeding train gaining noticeable momentum on the technical charts!

After rallying to a fresh 2023 high at 1.3140 and rising more than 2% this week (as of writing), sterling bulls are certainly in the driving seat. Indeed, the GBPUSD has drawn strength from upbeat UK GDP data and a broadly weaker dollar.

The key question is whether bulls can maintain the appetite for further gains in the week ahead.

Here are 3 reasons why you should keep an eye on the GBPUSD:

1. UK June Consumer Price Index (CPI)

On Wednesday, July 19th – the latest UK inflation report will be published.

All eyes will be on the incoming UK inflation report which could influence BoE hike expectations. This will be topped off with the latest retail sales figures and Gfk Consumer confidence report on Friday which could provide fresh insight into the health of the UK economy.

Markets are forecasting:

• CPI year-on-year (June 2023 vs. June 2022) to cool 8.2% from 8.7% in the prior month.
• Core CPI year-on-year to remain unchanged at 7.1% from 7.1% seen in May.
• CPI month-on-month (June 2023 vs May 2023) to cool 0.4% from 0.7% in the prior month.

As of writing, traders are pricing in a 73% probability of a 50-basis point BoE hike in August as the central bank continues to battle sticky inflation.

• Signs of still stubborn inflation may reinforce expectations around the BoE hiking rates by 50 basis points at its August meeting. This development could propel the GBPUSD beyond 1.3200.
• Should June’s CPI report show signs of cooling inflationary pressures, this could fuel hopes around the BoE opting for a smaller 25 basis point hike in August. Speculation around the BoE slowing down the pace of rate increases may weaken the pound, dragging the GBPUSD back towards 1.3000.

2. Dollar volatility

Fed hike expectations are likely to influence the US dollar in the week ahead. On top of this, investors will be dished out key US data which may provide fresh insight into the health of the largest economy in the world.

The US empire manufacturing will be under the spotlight on Monday, to key US retail sales and industrial production figures on Tuesday. Much attention will also be directed towards the US initial jobless claims and University of Michigan Consumer Sentiment Index on Thursday.

• If US economic data disappoints, this could weaken the dollar as expectations mount over the Federal Reserve pausing rate hikes down the road. Dollar weakness is seen pushing the GBPUSD higher.

• A strong set of economic releases may bolster the case for US rates remaining higher for longer. This is likely to strengthen the dollar, dragging the GBPUSD lower.

3. Technical forces – bulls

The GBPUSD remains heavily bullish on the daily and weekly timeframe.

There have been consistently higher highs and higher lows in the weekly timeframe with prices slicing through the 200-week Simple Moving Average. Given how the currency pair remains in a healthy weekly bullish channel, the path of least resistance points north. A strong weekly close above 1.3200 may encourage an incline towards the next major resistance at 1.3700. While bulls are clearly in a position of power, the Relative Strength Index (RSI) has reached overbought levels. A technical throwback could be on the table before bull’s attack once again.

Zooming into the daily charts, the GBPUSD remains in a strong uptrend. After hitting a fresh 2023 high at 1.3140, the question is whether bulls have the appetite for more gains? A strong breakout above this point could encourage an incline towards 1.3200 and 1.3250. However, should prices slip back below 1.3000, this may trigger a further decline towards 1.2840.